by Yong Kaichang King & Wood Mallesons
The Monetary Authority of Singapore (MAS) recently announced that it will issue up to five new digital bank licenses. This is in addition to any digital banks that the Singapore banking groups may also establish under the existing internet banking framework introduced in 2000. This move extends digital bank licences to non-bank players.
A digital bank is the full digitization and online provision of all traditional banking activities and functions that historically were only available to customers in a physical bank branch location. It involves the full, end-to-end automation of all banking processes that go beyond online or mobile banking.
The five new digital bank licenses will comprise:
- up to two digital full bank licences, which allow licensees to provide a wide range of financial services and take deposits from retail customers; and
- up to three digital wholesale bank licences, which allow licensees to serve small and medium-sized enterprises (SMEs) and other non-retail segments.
Summary of digital full bank framework
Summary of digital wholesale bank framework
MAS expects to invite applications in August 2019, and will provide more details on the eligibility and admission criteria at that time.
The next step in the liberalization of Singapore’s banking sector
Singapore’s latest move to issue digital banking licenses is the next step in the liberalization of its banking sector in the era of the global digital revolution in finance.
In contrast with its nearest counterpart Hong Kong, Singapore is taking a more gradual, progressive and calibrated approach. To date, Hong Kong has granted eight virtual bank licenses, the counterparts to digital bank licenses to be issued in Singapore. The requirements for Hong Kong virtual banks and Singapore digital banks share many similarities, such as the requirements to be locally incorporated, to have a credible and viable business plan, and to provide an exit plan in case the business is unsuccessful. However, certain key differences exist. For example, Hong Kong has no foreign ownership restrictions for its virtual banks, whereas Singapore requires its digital full banks to be controlled by Singaporeans. Also, Hong Kong does not draw a distinction between digital full banks and digital wholesale banks, and does not have fixed phase-in requirements for its virtual banks.
Singapore’s new digital bank license scheme is primed to be particularly attractive to non-bank/non-financial institution players, who were previously inhibited from investing in the banking sector due to high infrastructure, maintenance and overhead costs. Non-bank/non-financial institution players may see this as an opportunity to diversify and/or to create new synergies with their existing business portfolios.
The scheme is also expected to be particularly appealing to foreign investors, particularly from China. Chinese outbound investment activity in South East Asia has increased significantly as a result of the Belt & Road Initiative, particularly in recent months as a hedge against fallout from the ongoing US-China trade war. Consequently, new opportunities have emerged to serve the banking and financial needs of the new wave of Chinese investors in South East Asia. Singapore is a global financial hub in South East Asia. This scheme can help Chinese investors expand and diversify their business presence in Singapore, introduce advanced digital banking features and technologies used in China into the Singapore market, and provide a springboard for their further business expansion into neighboring countries in South East Asia.
 This article is a general introduction to the subject matter in question and should not be construed as legal advice. If you have any specific or further questions, please feel free to contact us to discuss.
 For more information, see: (a) MAS’ media release “MAS to issue up to five digital bank licenses” dated 28 June 2019 (https://www.mas.gov.sg/news/media-releases/2019/mas-to-issue-up-to-five-digital-bank-licences); (b) Annex A – Digital Full Bank Framework (https://www.mas.gov.sg/-/media/Annex-A-Digital-Full-Bank-Framework.pdf); (c) Annex B – Digital Wholesale Bank Framework (https://www.mas.gov.sg/-/media/Annex-B-Digital-Wholesale-Bank-Framework.pdf); and (d) Annex C – Liberalisation of Singapore’s banking sector in last 20 years (https://www.mas.gov.sg/-/media/Annex-C-Liberalisation-of-Singapores-Banking-Sector-in-last-20-years.pdf).\
 See Reply to Parliamentary Question on terms of operations for virtual banks published on the MAS website on 8 July 2019 (https://www.mas.gov.sg/news/parliamentary-replies/2019/reply-to-parliamentary-question-on-terms-of-operations-for-virtual-banks).
 See Hong Kong Monetary Authority’s (HKMA) press release dated 9 May 2019 (https://www.hkma.gov.hk/eng/key-information/press-releases/2019/20190509-3.shtml).
 For more information, see HKMA’s revised Guideline on Authorisation of Virtual Banks dated 30 May 2018 (https://www.hkma.gov.hk/media/eng/doc/key-information/press-release/2018/20180530e3a2.pdf).